Weekend Portfolio Analysis (August 1, 2015)

Market Conditions

This market is starting to feel a bit like “Groundhog Day.” Last week the market was down, this week it gained back a bit more than 50% of what it lost last week. The S&P 500 Index (SPX) opened Monday on a cautious note at 2078.19 and closed Friday at 2103.84, up 25.65 or 1.23%. Earnings reports continued to be the major focus this week. A disappointing Employment Cost Index report on Friday along with lackluster earnings from oil giants ExxonMobil (XOM) and Chevron (CVX) muted the week’s earlier enthusiasm.


The SPX continues trading in the 2040-2135 range that has bound it for most of the year with no end in sight. This is great news for credit spread sellers and bad news for the buy-and-hold crowd.

Crude oil rallied mid week due to a surprisingly large drawdown in crude inventories. On Friday /CL gave up all of the week’s prior gains due to a higher U.S. oil rig count for a second week in a row. /CL crude oil futures opened Monday at $48.00 and closed Friday at $46.77, down $1.23 (or 2.56%).


Trade Activity This Week

It was another busy week with many earnings trades. This quarter has been a difficult one for earnings trades as there have been more outlier moves than I have experienced in the past. Although I am still in positive territory for earnings trades this season, it has not been as lucrative as past quarters.

Monday I closed two crude oil positions. The /CL Sep 55 call was closed for a $72.88 profit and the Sep 52.5/53.5/47.5/46.5 iron condor was closed for a loss of $68.48. With the continued decline in oil on Monday, I thought it would be best to start reducing my risk as opportunity presents itself, particularly since my position in crude oil has grown a bit larger than originally planned. Tuesday I closed the /CL Oct 68 call for a $122.88 profit. I will not go into detail on the oil trades here, but plan on posting a separate article that will chronicle the entire trade, series of adjustments, and hedges. Of course I am going to wait until the /CL positions are completely closed before doing this.

Also on Tuesday, I closed both the /ES Aug 1850/1800 put vertical and the /ES Sep 1830/1780 put vertical. These were closed for profits of $49.36 and $34.36, respectively. With US Steel (X) reporting earnings on Tuesday evening, I sold the Jul5 18 straddle for $1.45 and closed it Wednesday morning for a scratch ($11.00 profit after commissions). On Wednesday I also closed the /CL Oct 37 put for a $152.88 profit after commissions. Wednesday before the close I placed two earnings trades – Solar City (SCTY) and Whole Foods (WFM). I sold the SCTY Jul5 63/51 strangle for $0.99 and was able to close it the next morning for a nice profit of $70. In WFM I sold the Jul5 41 straddle for $3.60. WFM moved well beyond the expected move on a negative earnings report resulting in a loss of $152 on this trade. I am starting to see a pattern here – the strangle for earnings trades is just not working well for me this season. I may need to rethink this strategy.

On Thursday I also closed part of the FXE position by rolling the 112 call to the 108 call. This resulted in a $165 profit on the 112 call. Thursday evening I sold the Jul5 78/63 strangle in Deckers Outdoor (DECK) for $1.13. Another decent return with a profit of $97.00 I also sold the Electronic Arts (EA) Jul5 77.5/67.5 strangle for $1.05 and closed it for a $67 profit.

On Friday, I bought back the Aug 15 put in SkyWest (SKYW) that I had sold two weeks earlier for a $62.00 profit. Although not sold with earnings in mind, SKYW did report earnings Thursday evening and beat estimates in a big way resulting in a 20% rally in the stock on Friday creating an opportunity to close this trade for a nice profit. Finally, I closed the /CL Sep 54 call for a $92.88 profit.

Overall, a good week!

Plan For Next Week

July is officially behind me and is one for the record books (my personal record book). In July I have experienced both the largest profit in a single month as well as the largest return on capital in a single month since I began trading. In July, the portfolio returned a 10.86% return on capital for the month. The portfolio is up 39.24% for the year versus 2.18% for the S&P 500 (see Trading Results).  The portfolio is currently over 60% in cash.

I will be looking for opportunities to continue closing out the remaining /CL positions. Trading activity will likely slow down a bit. I had more trades in July than any other month this year. However, I am planning a vacation during the fourth week of August, so I will be trying to unwind any short-term trades before that time and don’t plan on adding any more short-term trades until after I return. I will continue to put on longer term credit spreads in /ES, RUT, and SPX if volatility expands again.

Have a great weekend!

  • Jonathan

    Keep up the great work Aram. You and Henrik are one of the few legit and free trading sites on the web.

  • JM

    Great work Aram. I just discovered your web site through one of your comment on the lazy-trader. I like your work on market condition, this is really helpful. If I may, can you tell me what’s your typical strategy in terms of strike price in a strangle for earning plays? Are they fixed for every play (e.g. 1SD), or adjusted for the expected move? Thanks and keep it up!

    • Aram Basmadjian

      Thanks, JM. For earnings, I prefer to use a strangle with the strikes at around two times the expected move. However, if the premium is to little, I will consider placing the strikes just outside the expected move. The farther you can get the strikes away and still collect a reasonable premium, the better off you will be.